Consumer lending has dropped to ‘almost zero’ under new regulations – Rainfin CEO

Consumer lending on marketplace lending platform RainFin has ground to a halt since the new National Credit Regulations threshold came into effect on 11 November, the company’s chief executive Sean Emery said yesterday.

“Our consumer lending has dropped almost to zero,” Emery said, adding that before the new threshold came into place consumer lending made up half of the platform’s focus.

Under the new threshold, lenders who lend even one cent to consumers have be registered with the National Credit Regulator to do so. Emery said most consumers are reluctant to go through the process of getting registered with the National Credit Regulator.

Under the National Credit Act consumers are also defined as a business with an annual turnover of up to R1-million. Previously lenders needed only register as a credit provider if they intended to lend more than R500 000 to such firms and consumers.

While Emery said RainFin doesn’t necessarily lend to startups — as small businesses have to have been in operation for a year to qualify for a loan — he did last year raise concern that the new threshold would effectively kill lending by consumers on the platform to very small businesses.

‘I’m not sure if the NCR is having an impact on entrepreneurs, on startups’

Yesterday he told Ventureburn that the platform has since taken a decision not to lend to small businesses with a turnover of less than R1 million. “We’ve set a parameter on our system that we won’t lend to people that have a turnover of less than a million rand.”

Yet he said while the new threshold had had a “massive effect” on lending — this has mainly been on consumers lending to consumers, rather than lenders using the platform to lend to small businesses.

“I’m not sure if the NCR is having an impact on entrepreneurs, on startups. I actually think the NCR is having an impact on where it’s supposed to be having  an impact — which is on consumers who are lending money to consumers for either themselves, cars, houses, consumption, whatever that might be,” he said.

Ventureburn asked Emery to provide RainFin’s latest figures for lending to small businesses, however he declined, citing competitive concerns but pledged to do so in the near future.

However he admitted that lending was down in the first quarter compared to the same period last year, after RainFin announced that it would buy back Barclays’ 49% stake in the company.

He added however that in response the platform had renewed contracts with some lenders which would be announced soon.

In addition he stressed that the new NCR threshold had nothing to do with RainFin’s decision to buy back Barclays’ share.

Read more: Exclusive interview: RainFin CEO on buying back company from Absa

In an attempt to find a way to lend to consumers, RainFin has been busy in the last over six months setting up a special purpose vehicle that would allow individuals to participate in lending to other consumers under the NCR.

Emery said the new structure has taken a significant amount of time and has not yet been approved by the NCR.

In December the lender launched a new facility by which consumers are able to lend to corporates.

However he admitted that over six months on the platform had not advanced any finance under the facility — having concluded only work on due diligence and proof of concepts.

Read more: RainFin adds new R100m Business-to-Retail loans to its product offering

Despite the new NCR threshold and the economy having gone into recession in the first quarter, Emery believes online lending platforms have a bright future.

“We think that marketplaces are going to be the only way that new credit is injected into the economy,” says Emery.

He adds that the marketplaces such as RainFin can help better connect financial institutions and development agencies with small businesses.

But he conceded that it’s not easy to lend to small firms online. “This market is difficult… it’s difficult because of our regulation. Consumer lending in South Africa is a highly regulated space, so is financial services — (it’s) deeply, deeply regulated.”